Take Cash In Hand Instead of a Promise of Future Payment

Having cash in hand or a promise for future payment might be seen as similar outcomes. Ultimately, you’re going to get your money.

Right?

Well, not necessarily so easily anyway.

Recently, as most you probably know, the city of Detroit appears to be moving toward bankruptcy proceedings based on recent news. The city has really suffered big problems, going from nearly 2 million people in the mid-20th century to around 700,000 now. Think about that: the city has lost nearly 2/3 of its residents!

This was a city that was once a symbol of America’s industrial might. A place that was a destination for so many people looking for an honest day’s work that would give their family a really good life. Tons of people without college educations in a previous generation were able to live really nice middle class lives and get pensions to boot.

Oh, about those pensions. According to some reports, there are many people worried about what will happen to those payments. This article from Forbes does a great job of discussing the bigger picture, and how people should take notice of what’s going on. Just imagine working in a career for a long period of time, and having a pension promised to you as part of the whole employment deal. You count on the pension for future income later in life when you’re old and can’t work anymore.

Then, suddenly, there is talk that they’re at risk. Money that was supposed to be coming to you, that you counted on, doesn’t seem to be a 100% certainty anymore. What will you get: the same amount, a reduced amount, or nothing? Scary stuff for older folks, and heartbreaking to see.

My big takeaways from this are as follows:

Take money in hand instead of a promise for money in the future.

Don’t count on someone else to support you over the long run, whether another person or an entity

Nobody has your back more than you

Take individual responsibility for your own finances

The first 3 points, I think, should be evident. Sometimes people get a bit confused with point #2, and think that a spouse is there to be a provider or money source, but really we are each individually responsible when it’s all said and done.

As for point #4, that gets a bit murky here because people could very well be incredibly responsible, mature people even if they count on a pension. After all, those are supposed to be relied upon.

However, I think we need to go back to point #1: take the money now versus a promise for future payment!

This could take many forms, in different situations. For example, you could be deciding between 2 jobs: one pays $10k less, but offers a potential $15k bonus. Would you go with that job versus the alternative which pays a higher fixed salary with no bonus? All things being equal, of course. I’d say the salary is more assured, while the bonus is simply a potential future payment that may or may not ever come your way.

It’s worth thinking about!

My Questions for You

In the example above, with the two jobs, which one would you be inclined to take? Again, all other things being exactly equal.

Do you ever think about the value of actually having money now versus having a promise to receive it in the future?

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Comments

I’d always go with the cash in hand instead of the promise. It is actually what I did recently, when deciding to sell my biggest money-making blog for what I estimated I’d get from it in the next 7 to 10 months. I decided to go the sure way and cash in instead of risking it getting slammed by Google or simply have people lose interest in it.

I would nearly always go for the cash in hand as opposed to the promised potential. In regards to the job, I’d take the one with no bonus as I’d hate to take the one with the bonus, lose out on it and be stuck making $10k less.

I tend to take money now. That’s one factor in favor of Traditional IRAs vs. Roths. With Traditional, you get your tax benefit now, and can invest it from now until retirement. With a Roth, you get your tax benefit later, perhaps much later. I know there are other factors to consider, but this one’s important imo.

Good points. That said, one additional factor to consider is the potential for tax rates changing in the future, as in getting much higher. How would that change the landscape, if tax-deferred meant waiting to pay a massive tax bill?

I went into teaching for various reasons, but pay was not one of them. The problem with teacher’s pay is it lags behind the rest of the world. It is guaranteed, but it slowly decreases because of inflation. Critics of pensions should take that into consideration when you criticize pensions for teachers.

I am paying 10.36% of my income into my pension plan, so I think of it as a forced savings vehicle. Since I am paying in, I don’t see it as a “handout” that I’ll get later in life. So if it collapses, I’ll be in the same boat as anyone who has lost their life savings through bad investments. So, I am also saving on my own outside the pension plan.

So am I….though keep in mind we don’t want to be in a situation where we think we are delaying gratification, only to find out that it never happens! Especially when it involves unconditional trust of others to act in our best interests.

Wealth-Building Financial Lessons

Disclaimer

We are well meaning folks that are not investment professionals or financial advisors. Please feel free to have fun here, and take this information in the spirit of entertainment, as it is not financial or legal advice, For that, seek an appropriate professional. Your actual financial decisions are your own responsibility. Thank you.